Which of the following shifts aggregate demand to the right?
a. both an investment tax credit and a decrease in income tax rates
b. an investment tax credit but not a decrease in income tax rates
c. a decrease in income tax rates but not an investment tax credit
d. neither an investment tax credit nor a decrease in income tax rates
Suppose the tax rate on interest income from saving were reduced.
a. The income effect, but not the substitution effect, would tend to reduce private
saving.
b. The substitution effect, but not the income effect, would tend to reduce private
saving.
c. Both the income and substitution effect would tend to reduce private saving.
d. Neither the income nor the substitution effect would tend to reduce private saving.
George puts $200 into an account when the interest rate is 8 percent. Later he checks
his balance and finds that he has a balance of about $272.10. How many years did he
wait to check his balance?
a. 3 years
b. 3.5 years
c. 4 years
d. 4.5 years
Which of the following could be the price elasticity of demand for a good for which a
decrease in price would decrease revenue?
a. 0.5
b. 1
c. 1.5
d. All of the above could be correct.
At the end of World War II many European countries were rebuilding and so were eager
to buy capital goods and had rising incomes. We would expect that the rebuilding
increased aggregate demand in
a. both the United States and Europe.
b. the United States but not Europe.
c. Europe, but not the United States.
d. neither the United States, nor Europe.
In the circular-flow diagram, which of the following items represents a payment for a
factor of production?
a. interest
b. capital
c. spending by households on goods
d. spending by households on services
Figure 9-15
Refer to Figure 9-15. The amount of government revenue created by the tariff is
a. B.
b. E.
c. D + F.
d. B + D + E + F.
Table 5-6
Supply is Demand is
Scenario A elastic elastic
Scenario B elastic inelastic
Scenario C inelastic elastic
Scenario D inelastic inelastic
Refer to Table 5-6. Which scenario describes the market for oil in the short run?
a. A
b. B
c. C
d. D
The multiplier effect
a. and the crowding-out effect both amplify the effects of an increase in government
expenditures.
b. and the crowding-out effect both diminish the effects of an increase in government
expenditures.
c. diminishes the effects of an increase in government expenditures, while the
crowding-out effect amplifies the effects.
d. amplifies the effects of an increase in government expenditures, while the
crowding-out effect diminishes the effects.
The principal reason that monetary policy has lags is that it takes a long time for
a. changes in the interest rate to change aggregate demand.
b. changes in the money supply to change interest rates.
c. the Fed to make changes in policy.
d. the federal government to change the tax code.
The Stock Market Boom of 2015
Imagine that in 2015 the economy is in long-run equilibrium. Then stock prices rise
more than expected and stay high for some time.
Refer to Stock Market Boom 2015. Which curve shifts and in which direction?
a. aggregate demand shifts right
b. aggregate demand shifts left
c. aggregate supply shifts right
d. aggregate supply shifts left.
If more people think a corporation’s stock is overvalued than think it is undervalued
then there is a
a. surplus, so its price will rise.
b. surplus, so its price will fall.
c. shortage, so its price will rise.
d. shortage, so its price will fall.
Once an idea enters society’s pool of knowledge, the idea becomes a
a. societal good.
b. private good.
c. public good.
d. proprietary good.
Benefits from trade would not include
a. the ability of people and nations to specialize.
b. a greater variety of goods and services becoming available.
c. less competition.
d. lower prices.
Under the assumptions of the Fisher effect and monetary neutrality, if the money supply
growth rate falls, then
a. both the nominal and the real interest rate fall.
b. neither the nominal nor the real interest rate fall.
c. the nominal interest rate falls, but the real interest rate does not.
d. the real interest rate falls, but the nominal interest rate does not.
Discounting refers directly to
a. finding the present value of a future sum of money.
b. finding the future value of a present sum of money.
c. calculations that ignore the phenomenon of compounding for the sake of ease and
simplicity.
d. decreases in interest rates over time, while compounding refers to increases in
interest rates over time.
Money demand depends on
a. the price level and the interest rate.
b. the price level but not the interest rate.
c. the interest rate but not the price level.
d. neither the price level nor the interest rate.
Refer to Table 2-5. Table 2-5 shows one set of production possibilities. Which of the
following statements is correct?
a. The opportunity cost of a dozen cookies does not depend on how many pounds of
coffee are being produced.
b. The opportunity cost of a dozen cookies increases as more cookies are produced.
c. The opportunity cost of a dozen cookies decreases as more cookies are produced.
d. The opportunity cost of a pound of coffee decreases as more coffee is produced.
Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium
quantity of the good to decrease from 200 units to 100 units. The tax decreases
consumer surplus by $450 and decreases producer surplus by $300. The deadweight
loss from the tax is
a. $250.
b. $500.
c. $750.
d. $1,000.
If a country is an exporter of a good, then it must be the case that
a. the world price is less than its domestic price.
b. consumer surplus is higher than a no trade situation.
c. the world price is greater than its domestic price.
d. they used an infant-industry argument to protect its producers.
If a 25% change in price results in a 40% change in quantity supplied, then the price
elasticity of supply is about
a. 0.63, and supply is elastic.
b. 0.63, and supply is inelastic.
c. 1.60, and supply is elastic.
d. 1.60, and supply is inelastic.
If the unemployment rate rises, which policies would be appropriate to reduce it?
a. increase the money supply, increase taxes
b. increase the money supply, cut taxes
c. decrease the money supply, increase taxes
d. decrease the money supply, cut taxes
Albert Einstein once referred to compounding as
a. “an obsession among economists that defies explanation.”
b. “the greatest mathematical discovery of all time.”
c. his own discovery.
d. John Maynard Keynes’s greatest contribution.
When the price level falls
a. people want to hold less money.
b. the interest rate falls.
c. investment spending rises.
d. All of the above are correct.
The idea that inflation by itself reduces people’s purchasing power is called
a. the inflation tax.
b. menu costs.
c. the inflation fallacy.
d. shoeleather costs.
Figure 9-2
Refer to Figure 9-2. With free trade, consumer surplus is
a. $45.
b. $80.
c. $210.
d. $245.
Economists tend to see ticket scalping as
a. a way for a few to profit without producing anything of value.
b. an inequitable interference in the orderly process of ticket distribution.
c. a way of increasing the efficiency of ticket distribution.
d. an unproductive activity which should be made illegal everywhere.
Figure 3-5
Hosne’s Production Possibilities Frontier Merve’s Production Possibilities Frontier
Refer to Figure 3-5. Hosne’s opportunity cost of one purse is
a. 4/5 wallet and Merve’s opportunity cost of one purse is 2/3 wallet.
b. 4/5 wallet and Merve’s opportunity cost of one purse is 3/2 wallets.
c. 5/4 wallets and Merve’s opportunity cost of one purse is 2/3 wallet.
d. 5/4 wallets and Merve’s opportunity cost of one purse is 3/2 wallets.
Figure 9-10. The figure applies to Mexico and the good is rifles.
Refer to Figure 9-10. With trade, the equilibrium price of rifles and the equilibrium
quantity of rifles demanded in Mexico are
a. P1 and Q1.
b. P1 and Q2.
c. P2 and Q2.
d. P0 and Q0.
Which of the following is not equal to total surplus?
a. consumer surplus – producer surplus
b. buyers’ willingnesses to pay – sellers’ costs
c. value to buyers – amount paid by buyers + amount received by sellers – cost to sellers
d. value to buyers – cost to sellers
The time inconsistency of monetary policy means that
a. once people have formed expectations of low inflation based on a promise by the
central bank, the central bank is tempted to raise inflation to lower unemployment.
b. at some times central banks think it is more important to keep unemployment low; at
other times, they think it is more important to keep inflation low.
c. monetary policy is not consistent across time because it is influenced by politics.
d. monetary policy is not consistent across time because policymakers are incompetent.